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Inflation Trends in Bangladesh Economy and its Impacts on Households in the

Last Decade (2012-2022): An Empirical Analysis

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12 ATSK Journal of Economics, Volume 1, Issue 2, Article 2, 12-23 ISSN: 3005-3668

Inflation Trends in Bangladesh Economy and its

Impacts on Households in the Last Decade (2012-2022):
An Empirical Analysis
*
Rabiul Karim and **Sabina Yasmin
Department of Economics, Asian University of Bangladesh, Dhaka, Bangladesh
Email of Sabina Yasmin: [email protected] Email of Rabiul Karim: [email protected]
Abstract: The inflation rate for consumer prices in Bangladesh is increasing over time. In the past 34 years the inflation
rate moved over between 2.0% and 11.4%. For 2022, an inflation rate of 7.7% was calculated. During the observation
period from 2012 to 2022, the average inflation rate was 6.05% per year. Overall, the price increase was 725.52%. An
item that cost 100 taka in 1987 costs 889.06 taka at the beginning of 2023. Estimates of the impact on households due to
inflation in Bangladesh are given in this study by using secondary data that are collected from different institutions. The
findings imply that because the poor spend a greater percentage of their income on food, the current inflation has a greater
negative impact on them. The findings show that recent inflation is mostly caused by increasing food costs, and that the
inflation rate experienced by the poor is larger than that of the non-poor groups. This paper emphasizes how crucial it is
for the government to implement pro-poor growth and anti-inflation policies in order to lessen the negative consequences
of recent inflation on the underprivileged.
Keywords: Bangladesh; Economy; Inflation; Households; Insecurity.

1.1 INTRODUCTION conventional wisdom holds that the poor pay a high
price for inflation. Since they hold a higher
One of the main macroeconomic issues in the percentage of their assets in liquid form than non-
economy is inflation, a well-established poor people, the poor have less access to the
phenomenon. Everyone is primarily concerned financial system and therefore less ability to hedge
about the general movement of a country's total against inflation. As a result, their purchasing
price level, especially if the movement is upward. power declines, especially for those groups whose
Inflation is now essentially a major concern for earnings are fixed in nominal terms.
both rich and emerging economies. In most Since Bangladesh's founding in 1971, the nation
emerging nations, inflation has been rising at an has experienced a variety of developments,
alarming rate since the 1970s. Because of the including slow economic growth, a high
financial and economic dualism, widespread prevalence of poverty, and a chronically high rate
eminent control over wages, prices, exchange rates, of inflation. In particular, inflationary drives
imports, and exports, as well as the abundance of degrade overall economic wellbeing of the
subsidies and incentives—many of which are populace by diminishing limited buying power, but
frequently misplaced—the problem of inflation is, they also exacerbate social conflict and erode
in a way, more complicated in developing public faith in the social and economic fabric of the
countries. nation. This study provides a fairly succinct
Concerns over the inflation rate's detrimental description of the trend in Bangladesh's inflation
impact on the economy and its negative welfare rates 2011 to 2022 and its dominance on the
effects on various socioeconomic groups, households during this period.
especially the poor, have increased significantly in
recent years. Reduced real income for households 1.2 LITERATURE REVIEW
is among the direct negative repercussions of
increasing inflation. Additionally, changes in The major point of this paper is a trend analysis
relative prices brought on by inflation may lead to of Bangladesh's inflation rates from 2011 until the
inefficiencies and injustices. Recognizing the present. While several reports, essays, and other
significant costs of inflation for the underprivileged publications have been made about inflation in
and poor in Bangladesh is crucial. The Bangladesh. However, the literature review in this
13 ATSK Journal of Economics Rabiul Karim and Sabina Yasmin

regard places a lot of emphasis on conducting inflation influences the economy as well as the
additional study. The research studies that were households of Bangladesh.
examined here came from a variety of journals,
articles, reports, websites, etc. 1.4 OBJECTIVE OF THE
Khatun, Fahmida, Ahamad, and Mazbahul G. STUDY
(2012) observed the main determinants of
inflationary trends in Bangladesh from FY1981 to It has been sought to conduct the research with
FY2009 in "Investigating the causes of inflationary a view to achieving some defined objectives from
trends in Bangladesh: an ARDL limits F-Test the very beginning of the investigation. The paper’s
Approach,". Increased domestic rice production goals are listed below:
and effective fiscal-monetary integration were
• To gain a basic understanding of inflation.
judged to be the most important policy alternatives
• To understand Bangladesh's inflation rate
for reducing inflationary pressure in Bangladesh,
trends from 2012 to 2022.
according to the report's empirical findings.
• To quickly ascertain the causes of inflation in
In "Recent Inflation in Bangladesh: Trends, Bangladesh.
Determinants and Impact on Poverty," Rahman, • To learn about its impact on households.
Bhattacharya, Shadat, and Deb (2008) investigated • To offer some suggestions for ways to maintain
current trends in overall inflation levels and a low or moderate inflation rate.
examined changes in the price levels of several
basic consumer goods. Their research also 1.5 RESEARCH
examined inflation in Bangladesh from a regional
comparative perspective, attempted to calculate the
METHODOLOGY
effect of inflation on poverty levels using the most This study is an empirical and descriptive study.
recent data on household income and spending, and The study essentially states Bangladesh's inflation
reviewed a number of government initiatives to rates since 2011 to onwards and provides a very
address both the causes and effects of inflation. quick analysis of the pattern. This research uses
In their study "Inflation and Economic Growth neither mathematical nor statistical methods. There
in Bangladesh: 1981-2005," Ahmed and Mortaza has been no survey. Data has been gathered from
(2005) empirically investigated the link between secondary sources in order to complete the research
inflation and economic growth in the context of in accordance with its aims. Economic Trends,
Bangladesh. The empirical data showed a Bangladesh Bank Bulletin, Bangladesh Economic
statistically significant long-run negative Review, Annual Report of Bangladesh Bank,
association between the country's inflation and Statistical Pocket Book of Bangladesh, CPD, IMF,
economic growth, as shown by a negative long-run and various published books, journals, and research
relationship between the CPI and real GDP. works that are pertinent to the study have all been
used to gather pertinent information. Additionally,
The researchers do believe that the study, professional knowledge has been used to help
"Inflation Patterns in Bangladesh's Economy and people grasp various terminologies better.
its Impacts on Households in the last decade”, is a
useful and instructive supplement to previous
research on Bangladesh's inflation trends.
2.1 ANALYSIS AND
INTERPRETATION
1.3 NEED OF THE STUDY
2.1.1 TRENDS IN INFLATION
The main reason for choosing this topic was to The annual percentage change in the average
learn about inflation and its influence on human life consumer's cost of acquiring a basket of goods and
in a nutshell. Bangladesh is a rising economy, but services, which may be set or modified at
it is amply effected by factors like inflation. Due to predetermined intervals, such as annually, is
inflation, households in Bangladesh suffer to reflected in inflation as measured by the consumer
varying extents. However, from this study we may price index. Most often, the Laspeyres formula is
get a clear idea about how the changing trend of employed.
Inflation Trends in Bangladesh Economy and its Impacts on Households ATSK Journal of Economics 14

Inflation in Bangladesh was 7.7% in 2022, up from 2018. Bangladesh's 2018 inflation rate was
38.73% from 2021. Bangladesh's 2020 inflation 5.54%, down 0.16% from 2017. Inflation rate was
rate was 5.69%, up 0.1% from 2019. The inflation the lowest in 2016 and it was 5.51.
rate in Bangladesh for 2019 was 5.59%, up 0.5%

Figure 1: Inflation rate from 2012-2021 (Source-Macrotrends).

The food inflation rate in Bangladesh was high and it reached 1.9% in 2021, which was the lowest
in 2014. From 2018, it showed a downward trend, during the period of 2012 to 2022.

Figure 2:-Food inflation rate from 2012-2021 (Source-BB annual report).

The non-food inflation rate shows a downward 2018. In 2022, the non-food inflation rate was
trend from 2012 to 2022. The highest rate (10.21%) 9.73%.
was in 2012 and the lowest rate (3.74%) was in

Figure 3: Non-food inflation rate from 2012-2021 (Source-BB annual report).

15 ATSK Journal of Economics Rabiul Karim and Sabina Yasmin

2.1.2 IMPACT ON HOUSEHOLDS The consumer price index in Bangladesh shows

an upward trend from 2012 to 2022. It also shows
Consumer price index reflects changes in the a dramatic increase in CPI within this period. As
cost to the average consumer of acquiring a basket higher CPI indicates higher prices, it gives birth to
of goods and services that may be fixed or changed higher rate of inflation. The households have to
at specified intervals, such as yearly. The spend more when the inflation rate is high.
Laspeyres formula is generally used. Data are
period averages.

Figure 4: CPI of Bangladesh from 2012-2021 (Source-World Bank). [Consumer price index (2010 = 100) –
Bangladesh].

2.1.3 URBAN AND RURAL food inflation shows an unsteady trend which
affects the households in urban areas to some
INFLATION RATE
extent. The non-food inflation rate was low
The households in urban areas face higher level compared to the rate in 2013.
of inflation from food to non-food category. The

Figure 5: Urban inflation rate from 2012-2021(Source-BB annual report).

Inflation Trends in Bangladesh Economy and its Impacts on Households ATSK Journal of Economics 16

Inflation also left its mark on rural households. inflation rate in the rural areas was higher than in
Inflation rates of all levels were more adjustable as the urban areas in 2022.
compared to the rates in the urban areas. Food

Figure 6: Rural inflation rate from 2012-2021 (Source-BB annual report).

2.1.4 INFLATION ON NECESSARY price of beef was BDT 750 in 2022 compared to
COMMODITY BDT.284 in 2013. The price of rice was showing
an upward trend from 2013 to 2022. Recently the
Among the necessary commodity prices, the price of a dozen of egg has reached the level of
price of beef was highly affected by inflation. The BDT.150 in 2022.

Figure.7: Commodity prices for selected years (Source-Data Bank).

17 ATSK Journal of Economics Rabiul Karim and Sabina Yasmin

Inflation was prevalent in the price of Chili commodities, though the income of the households
among the following necessary commodities. didn’t increase that much.
Households had to spend more on the necessary

Figure 8: Commodity prices for selected years (Source-Data Bank).

2.1.5 INFLATION AND expenditure as percentage of GDP. Households
CONSUMPTION EXPENDITURES were affected more or less due to inflation.

Inflation was one of the major factors which

gave a downward trend to consumption

Figure 9: Consumption expenditure as percentage of GDP for selected years (Source-World Bank).
Inflation Trends in Bangladesh Economy and its Impacts on Households ATSK Journal of Economics 18

Though household consumption has increased, with the growing inflation rates. The household
it didn’t work for all the households in the same consumption reached a level of 286.3 billion USD
way. Only the high income and upper middle in 2021, in spite of having an unequal income
income class households were able to keep pace distribution.

Household Consumption
400

300

200

100

0
2013
2015
2017
2019
2021
2022

Hosehold consumption (Billion USD)

Figure 10: Household consumption for selected years (Source-The Global Economy.com, Macrotrends).
The welfare of a household is greatly impacted spikes and the nationwide lockdown. A rebound
by food insecurity. The good news is that, despite appears to be taking place, but it's likely that
the observed rise in food insecurity during the first conditions were worse a few months ago (during
few months of the pandemic (last year), the the rigorous lockdown time). Urban households
proportion of households reporting moderate or appear to be recovering a little more slowly than
severe food insecurity has not increased as of rural ones. These are early signs of household
September 2021, despite recent COVID-related resilience in Bangladesh.

Figure 11: Food insecurity for selected years (Source-International Food Policy Research Institute).
19 ATSK Journal of Economics Rabiul Karim and Sabina Yasmin

It's vital to highlight that Bangladesh's total number of previously food secure households now
food insecurity has increased in comparison to pre- experience mild food insecurity. When you
pandemic times, even though the prevalence of tabulate the prevalence of any food insecurity
moderate and severe food insecurity has returned reported by households, this becomes abundantly
to pre-pandemic levels. This is due to a evident (i.e., mild, moderate or severe food
considerable increase in mild food insecurity insecurity).
compared to 2019. In other words, a significant

Figure 12: Food scarcity for selected years (Source- International Food Policy Research Institute).
With over 58.5 million people, or 36% of the of Bangladesh's total population, experience
total population, suffering from Mild Chronic Food moderate to severe chronic food insecurity (IPC
Insecurity (IPC Level 2) and 69.8 million people, Levels 3 and 4), with 11.7 million of those
or 43% of the total population, classified as IPC individuals experiencing severe chronic food
Level 1 (No Chronic Food Insecurity), Bangladesh insecurity (IPC Level 4), and 23.1 million of those
has made significant strides in food security in individuals experiencing moderate chronic food
recent years compared to many of its Asian insecurity (IPC Level 3).
counterparts. Nearly 35 million individuals, or 21%

Figure 13: Chronic food insecurity situation (Source- IPC Analysis Report on the Chronic Food Insecurity
Situation-2021).
Inflation Trends in Bangladesh Economy and its Impacts on Households ATSK Journal of Economics 20

In IPC CFI Levels 3 and 4, six districts have a Mymensingh, and Gaibandha. Although 15% of
share of households that is 35% or above. These the population in Chattogram and Dhaka is IPC
include Cox's Bazar, Bandarban, Jamalpur, CFI Level 3 or higher, these cities are still
Kurigram, Gaibandha, and Sunamganj. The total categorized as IPC CFI Level 2 (Mild), which
population in IPC CFI Levels 3 and 4 exceeds 1 explains why such a substantial fraction of the
million in four districts: Chattogram, Dhaka, population is in Levels 3 and 4.

Figure 14: Number of districts in different CFI (Chronic Food Insecurity) Levels (Source- IPC Analysis
Report on the Chronic Food Insecurity Situation).
Recent inflation has created havoc all around doubled from 7% in June of previous year to 13%
the country. An estimated 30% of Bangladeshis are in May. Over the past year, there has been a
food insecure, despite the fact that the economy has noticeable decline in the number of people who eat
recovered from the shocks brought on by the smaller meals. From 17 percent in June of last year,
pandemic. According to the poll, the percentage of it dropped to 9 percent in May of this year.
persons who reported going to bed hungry nearly

Figure 15: Food Scarcity Situation for 2021 and 2022 (Source-The Daily Star).
21 ATSK Journal of Economics Rabiul Karim and Sabina Yasmi

3.1 POLICY should have enough food grain buffer stock (wheat
and rice). People will feel more confident as a
RECOMMENDATION result.
Global hunger is getting worse every day. • The use of electronic and print media could
Furthermore, due to the serious risks that climate boost the current information-dissemination
change poses to the nation's agricultural system on the costs of key commodities.
productivity, Bangladesh is expected to be the net • The weekly monitoring of domestic and
loser in any significant changes to the global food foreign prices of critical goods may help the
production map. In order to deal with the global government's surveillance efforts.
commodity boom, Bangladesh must embrace both
long-term and short-term measures. According to • The government should support small and
the study presented above, Bangladesh's recent medium traders in addition to large importers for
inflation can be attributed to both demand and the import of important goods and assist them in
supply side issues. These factors indicate that there obtaining financing from commercial banks in
is less likelihood of a reducing high inflationary order to increase competition in the market.
trend in Bangladesh in the near future. The • The current Public Food Distribution
administration has already implemented certain System (PFDS), which consists of Targeted Food
measures to curb inflation. To stop the price spiral, Transfer Programs, the sale of rations to Essential
the government must take more sensible action. Priority (EP) and Other Priority (OP) groups, and
This study presents a few suggestions that are the Open Market Sale (OMS) program, is
broken down into supply-side and demand-side insufficient (covering only about 7% of the total
policy approaches. amount of food required) to have any significant
• The increase of broad money should be impact on the costs of essential food items. The
consistent with the projected real GDP growth in government should therefore extend PFDS to those
order to reduce the strain of inflation on the who are most negatively impacted by the price
economy. spiral.

• Since the majority of the government's • The government should encourage the
borrowing from non-bank sources is non- formation of producers' cooperatives, which will
inflationary, the government may choose to borrow seek to ensure fair prices for their products while
more from non-bank sources (national savings also helping to remove superfluous intermediaries
schemes) by bringing back a few long-term savings in the supply chain. The market price will be
plans that were previously in place. stabilized as a result.

• By avoiding the interventionist exchange • The Fertile Soil, the most valuable
rate policy of the Bangladesh Bank, steps can be resource, is a gift from nature to Bangladesh. More
taken to make the exchange rate responsive to those finding for research and extension activities in the
of surrounding nations. agricultural sector is required in order to create or
improve current technologies that will increase
• Sterilization may counteract the increase agricultural output while also establishing agro-
of reserve money resulting from reserve buildup. based companies and strengthening storage,
Bangladesh Bank has the option to sell interest- marketing, and management capabilities.
bearing government securities.
• To break up any collusive oligopolistic
• A higher reserve requirement could result power wielded by the private sector and increase
in a higher reserve-deposit ratio, which would the competitiveness of the distribution network, the
reduce both the money multiplier and the money government should draw on the experience of the
supply. Trading Corporation of Bangladesh (TCB) by
• To combat inflation, we need also bolstering its capacity with skilled labor.
strengthen the management of our food grain
stocks. Considerable supplies have resulted in high
wastage due to insufficient storage space and
technology. In case of shocks, the government
Inflation Trends in Bangladesh Economy and its Impacts on Households ATSK Journal of Economics 22

• The BB's policies on lending, interest accommodating monetary policy. However,

rates, and exchange rates are essential for because of how persistently high inflation is, it has
containing inflation. When the BDT is also frequently increased cash reserve ratios
undervalued, the nation purchases some foreign (CRR), repurchase agreements (repo), and reverse
inflation; however, at this time, a significant BDT repo. The truth is that such inconsistent policy has
appreciation may not be a viable choice due to the not been successful in containing demand-driven
potential disruption to the nation's export industry inflation. The impact of rising inflation on low-
and labor market. However, the BB should permit income households is being mitigated through a
a slight appreciation of the BDT so that it can number of safety net initiatives, in particular
contribute in some tiny way to reducing currency- Vulnerable Group Development, Food for Work,
induced inflation. Thus, in order to combat the and open market rice sales.
rising inflationary trend, a comprehensive
According to Hossain (2010), the poor
coordinated policy is needed.
monetary policy design and implementation are to
4.1 CONCLUSION blame for Bangladesh's inflation instability. The
Bangladesh Bank's and the IMF's recommended
One of the pillars of macroeconomic stability in policies would largely have no impact on inflation
an economy is a low rate of inflation. Bangladesh brought on by changes to the supply side of the
has seen various levels of inflation since its market. Another significant problem in this regard
inception over the years. The current decade is the unstable political environment. As a result,
likewise portends an uncertain picture of inflation the government should implement stringent but
from its inception. necessary measures in accordance with
In order to promote growth and lower inflation, Bangladesh's inflation scenario while taking the
the Bangladesh Bank has been following an wider world into account.

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